Individual Retirement Accounts are savings/investment plans that provide tax benefits. With traditional and Roth IRAs you do not have a minimum earnings requirement provided your earned income is at least as much as you contribute. However, traditional and Roth IRAs have maximum earnings limits that apply to many taxpayers.

Identification

The IRS sets earnings limits called phaseout rules that affect your contributions to traditional and Roth IRAs. The phaseout rules for traditional and Roth IRAs are somewhat different. Earnings limits vary according to your tax filing status. If you have a retirement plan at work, it will affect your earnings limits. The IRS adjusts earnings limits on a year-by-year basis. The figures used are for 2010.

Features

The IRS uses your modified adjusted gross income to determine whether or not phaseout rules apply. For each tax filing status category there are two AGI amounts. The lesser amount is the point at which phaseout rules begin to take effect. The larger amount is the point at which the phaseout is complete. For traditional IRAs the phaseout reduces the amount of contributed funds you can deduct from your taxes. For Roth IRAs the phaseout reduces the amount you may contribute to the IRA.

Traditional IRRA

If you file as single or head of household and you do not have a retirement plan at work, there is no phaseout earnings limit. If you do have an employer-provided retirement plan, your tax deduction begins to decrease once your AGI reaches $56,000 and is eliminated when your AGI equals $66,000. For someone who is married and filing separately, phaseout starts at zero AGI and contributions are no longer tax deductible when the AGI equals $10,000.

If neither you nor your spouse has a retirement plan at work and you file jointly, phaseout limits do not apply. If you have an employer-provided retirement plan phaseout starts at $89,000 and is complete when your AGI reaches $109,000. If you are not covered by a retirement plan at work but your spouse is, your phaseout earnings limits are $167,000 and $177,000.

Roth IRA

For Roth IRAs, if your tax filing status is other than married and filing jointly, the amount you may contribute is reduced starting when your AGI equals $105,000. Once your AGI reaches $120,000 you cannot make any contributions to a Roth IRA. For persons who are married and filing jointly, the figures are $167,000 and $177,000. If you’ve been contributing to a Roth IRA in the past, the status of funds in your account is not affected. You just can’t add more money.

Roth Conversions

Before 2010, if your AGI exceeded $100,000 you could not roll over funds from another type of retirement plan into a Roth IRA. However, Congress rescinded this rule effective in 2010. In addition, because the IRS does not classify rollover funds as contributions, the IRS phaseout rules do not apply.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.